You have been hired as a consultant to recommend a

1. Fixed reimbursement amount (the base rate) to propose during the contract negotiations for Phase 4 hospital services.

2. To help in the analysis, Josh has indicated that approximately 60 percent of nursing, ancillary, operating room, and laboratory costs are fixed. The remaining costsradiology, drug, and other servicesare predominantly variable. Furthermore, current payers are reimbursing the hospital at roughly $140,000 for Phase 4 services.

3.The Center has sufficient capacity to handle about 30 more transplants before fixed costs would increase by a meaningful amount. If marginal volume exceeds 30 transplants, the best estimate is that fixed costs would increase somewhere between 15 and 25 percent. (document your response for position)

4. Identify the underlying cost structure of the Phase 4 hospital services?

5. should the hospital worry about a long-term pricing strategy, or is it sufficient to think only of the first-year contract?

6. if the price is set significantly lower than the average reimbursement amount paid by current payers, what impact would that have on future negotiations with those payers?